Do Entrepreneur Personal Behaviors Predict Small Business Credit Outcomes?
Posted: 18 Jun 2021 Last revised: 8 Dec 2021
Date Written: June 15, 2021
Using bank administrative data on entrepreneurs’ personal and business activities, we show that an entrepreneur’s personal behaviors, revealed from the personal consumption, finance, and credit activities, can well predict the future credit outcomes of her small business. Utilizing advanced machine learning methods, we find the predictive power of entrepreneur personal behaviors significantly outperforms that of firm-specific information. By incorporating entrepreneur personal features into credit assessment, lenders can reduce the predicted default rate of small business borrowers by about half. Our finding sheds light on the informational value of entrepreneur personal activities to creditors and investors.
Keywords: Entrepreneur personal traits, Managerial behavioral consistency, Credit risk, Machine learning
JEL Classification: G40, G21, C55, C58
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